IT is both heartening to see the lingering strength of Malaysia’s private consumption in the first quarter of 2020 and concerning to think about its prospects in the second quarter, OCBC Bank said.
It said private consumption commands nearly 62% of the country’s gross domestic product (GDP) now compared to 57% and 59% on average in the last two years.
“For one, if the bulk of the private consumption strength has been due to frontloaded purchases ahead of the Movement Control Order (MCO) imposition in mid-March, that obviously leaves a gap in 2Q,” it said in its treasury research report today.
OCBC said there are also the much poorer employment prospects to contend with now versus just a few months ago.
“Already, the statistics office noted a pickup in the unemployment rate in March to 3.9%, compared to 3.3% in February,” it said.
It said the April unemployment rate would have most likely crossed above 4%, portending a much less benign landscape of purchasing power, especially against the structural backdrop of high household indebtedness.
“In short, as much as we take comfort in the resilience of 1Q’s GDP data overall and the private consumption print specifically, we are concerned about 2Q,” it said.
It said Bank Negara Malaysia (BNM) is already expecting an outright year-on-year (yoy) contraction in 2Q.
“Our sense is that the economy may see a contraction as deep as 6% yoy during the period, before eking out some gains in the second half to allow it to post a negative growth of 0.5% for the year,” it said.
OCBC also said having implemented a 100 basis points (bps) rate cut this year, BNM is expected to leave the Overnight Policy Rate (OPR) unchanged at 2%, if such a baseline scenario holds.
However, it said the outlook came with tonnes of caveats including no more need for any reimposition of restriction orders after the existing one runs its course.
It said with the political temperature rising again ahead of the reopening of parliament, any further uptick would inadvertently hurt the path towards recovery as well.
On the global front, it said there is also the base assumption that the major economies could recover enough ground without endangering a second wave of outbreaks that would shut them all once more. — May 13, 2020, Bernama
